Understanding Homeowners Insurance Coverage

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Homeowners coverage provides financial protection against loss due to disasters, theft and accidents. Most standard policies include four essential types of coverage: Coverage for the structure of your home; Coverage for your personal belongings; Liability protection; Coverage for Additional Living Expenses


Coverage for the structure of your home

Your homeowners policy pays to repair or rebuild your home if it is damaged or destroyed by fire, hurricane, hail, lightning or other disasters listed in your policy. Most policies also cover detached structures such as a garage, tool shed or gazebo—generally for about 10 percent of the amount of insurance you have on the structure of the house.

A standard policy will not pay for damage caused by a flood, earthquake or routine wear and tear.

When purchasing coverage for the structure of your home, remember this simple guideline: Purchase enough coverage to rebuild your home.

Coverage for your personal belongings

Your furniture, clothes, sports equipment and other personal items are covered if they are stolen or destroyed by fire, hurricane or other insured disasters. The coverage is generally 50 to 70 percent of the insurance you have on the structure of the house.

The best way to determine if this is enough coverage is to conduct a home inventory.

Personal belongings coverage includes items stored off-premises—this means you are covered anywhere in the world. Some companies limit the amount to 10 percent of the amount of insurance you have for your possessions. You also have up to $500 of coverage for unauthorized use of your credit cards.

Expensive items like jewelry, furs, art, collectibles and silverware are covered, but there are usually dollar limits if they are stolen. To insure these items to their full value, purchase a special personal property endorsement or floater and insure the item for its officially appraised value.

Trees, plants and shrubs are also covered under standard homeowners insurance—generally for about $500 per item. Trees and plants are not covered for disease, or if they have been poorly maintained.

Liability protection

Liability covers you against lawsuits for bodily injury or property damage that you or family members cause to other people. It also pays for damage caused by your pets. So, if your son, daughter (or even your dog) accidentally ruins a neighbor’s expensive rug, you are covered. (However, if they destroy your rug, you’re out of luck.)

The liability portion of your policy pays for both the cost of defending you in court and any court awards—up to the limit stated in your policy documents.

Liability limits generally start at about $100,000, however, it’s a good idea to discuss whether you should purchase a higher level of protection with your insurance professional. If you have significant assets and want more coverage than is available under your homeowners policy, consider purchasing an umbrella or excess liability policy, which provides broader coverage and higher liability limits.

Your policy also provides no-fault medical coverage, so if a friend or neighbor is injured in your home, he or she can simply submit medical bills to your insurance company. This way, expenses can be paid without a liability claim being filed against you. It does not, however, pay the medical bills for your own family or your pet.

Additional living expenses (ALE)

ALE pays the additional costs of living away from home if you cannot live there due to damage from a an insured disaster. It covers hotel bills, restaurant meals and other costs, over and above your usual living expenses, incurred while your home is being rebuilt.

Keep in mind that the ALE coverage in your homeowners policy has limits—and some policies include a time limitation. However, these limits are separate from the amount available to rebuild or repair your home. Even if you use up your ALE your insurance company will still pay the full cost of rebuilding your home up to the policy limit.

If you rent out part of your house, ALE also covers you for the rent that you would have collected from your tenant if your home had not been destroyed.

Next steps: Purchasing a home? Get the Home Buyers Insurance Checklist.

Should I Insure Household Help

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Accidents happen—and if they happen to people you’ve hired to come into your home or onto your property to work, you’re financially liable. It makes sense to understand how you’re already covered and when to further insure household help.


Appropriate and adequate insurance coverage depends on the nature of the employee’s position and the assets you’re protecting. As always, consult your insurance professional with any questions or requested changes to your policy. Here’s some information to get you started.

If you contract a worker with an outside firm

For many household and in-home care needs—for example, for a nurse, a physical therapist, a cook or a housekeeper—you may decide to contract with a business or agency that provides these types of pros.

  • Determine who is the employer. When you’re dealing with a firm or agency, in most cases the worker you hired is an employee of that business and insured under their auspices. (If for some reason you’re the employer, read on to the situations below and talk to your insurance professional.)
  • Ask the firm for a copy of its certificates of insurance, which provides documentation that the firm provides workers compensation for its employees. If the firm also offers health and disability insurance, you can feel comfortable that any worker injured on your property will receive medical treatment.

If you hire occasional workers

If you occasionally hire a babysitter to take care of your children or a young person in your neighborhood to rake leaves or clean the garage, review your current insurance and:

  • Learn about the current no-fault medical coverage in your homeowners policy or renters insurance. If someone other than an immediate family member is injured on your property, you can submit their medical bills directly to your insurance company for reimbursement. Make sure your policy limits are adequate to your needs.
  • Check your liability insurance. Depending on your current homeowners and renters coverage and your assets, you may elect to raise the amount or buy more coverage through an umbrella liability policy.

If you hire permanent full- or part-time employees

If you hire one or more home workers on a permanent, regularly scheduled basis, consider purchasing workers compensation insurance. Workers comp provides coverage for medical care and physical rehabilitation for an employee who is injured on the job, as well as lost wages if the employee is severely hurt and no longer able to work. In the worst-case scenario, it also provides death benefits.

  • Find out if your state requires workers compensation for the type of employees you’re hiring (ex. housekeeper, gardener, etc.). Your state workers compensation board or agency can provide this information.
  • Determine the mandatory requirements workers comp coverage. For instance, some states may require an employer who hires a certain number of employees to buy workers compensation. In other states, the determination might be based on the number of hours an employee would work.
  • Don’t ignore the law. It’s important to note that if you’re required by law to buy workers compensation insurance and you fail to do so, your homeowners or other applicable policies will not pay for any fines, court awards or any other penalties against you.

If your employee is going to drive your car

Whatever the nature of the employee relationship, it’s important to inform your auto insurance company if the person you hire is going to drive your car. For example, if you’re going to lend your car to a worker to pick up groceries or take an aging parent to the doctor, your insurer needs to know about the additional driver for auto insurance purposes. Whatever the employee car usage, your insurer can explain your options.

Next steps link: Do you anticipate lots of workers because you’re renovating? Know the insurance implications of remodeling your home.

Dog Bites & Homeowners Insurance

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Almost 90 million dogs are owned as pets in the United States according to a 2017-2018 survey by the American Pet Products Association.

According to the Centers for Disease Control and Prevention, about 4.5 million people are bitten by dogs each year. Among children, the rate of dog-bite–related injuries is highest for those 5 to 9 years old. Over half of dog-bite injuries occur at home with dogs that are familiar to us.

Homeowners and renters insurance policies typically cover dog bite liability legal expenses, up to the liability limits (typically $100,000 to $300,000). If the claim exceeds the limit, the dog owner is responsible for all damages above that amount.

Dog bite liability and homeowners insurance

Some insurance companies will not insure homeowners who own certain breeds of dogs categorized as dangerous, such as pit bulls. Others decide on a case-by-case basis, depending on whether an individual dog, regardless of its breed has been deemed vicious. Some insurers do not ask the breed of a dog owned when writing or renewing homeowners insurance and do not track the breed of dogs involved in dog bite incidents. However, once a dog has bitten someone, it poses an increased risk. In that instance, the insurance company may charge a higher premium, nonrenew the homeowner’s insurance policy or exclude the dog from coverage.

Some insurers are taking steps to limit their exposure to such losses. Some companies require dog owners to sign liability waivers for dog bites, while others charge more for owners of breeds such as pit bulls and Rottweilers and others are not offering insurance to dog owners at all. Some will cover a pet if the owner takes the dog to classes aimed at modifying its behavior or if the dog is restrained with a muzzle, chain or cage.

Homeowners insurance liability claims

  • Homeowners insurers paid out over $686 million in liability claims related to dog bites and other dog-related injuries in 2017, according to the Insurance Information Institute (I.I.I.) and State Farm®.
  • An analysis of homeowners insurance data by the I.I.I. found that the number of dog bite claims nationwide increased to 18,522 in 2017 compared to 18,123 in 2016—a 2.2 percent increase.
  • The average cost per claim for the year increased by 11.5 percent. The average cost paid out for dog bite claims nationwide was $37,051 in 2017, compared with $33,230 in 2016. The average cost per claim nationally has risen more than 90 percent from 2003 to 2017, due to increased medical costs as well as the size of settlements, judgments and jury awards given to plaintiffs, which are trending upwards.
  • California continued to have the largest number of claims in the United States, at 2,228 in 2017, an increase from 1,934 in 2016. The state with the second highest number of claims was Florida at 1,345. Florida had the highest average cost per claim at $44,700. The trend in higher costs per claim is attributable not only to dog bites but also to dogs knocking down children, cyclists, the elderly, etc., which can result in injuries that impact the potential severity of the losses.

State and local legislation

Dog owners are liable for injuries their pets cause if the owner knew the dog had a tendency to bite. In some states, statutes make the owners liable whether or not they knew the dog had a tendency to bite; in others, owners can be held responsible only if they knew or should have known their dogs had a propensity to bite. Some states and municipalities have “breed specific” statutes that identify breeds such as pit bulls as dangerous; in others individual dogs can be designated as vicious. At least two states, Pennsylvania and Michigan, have laws that prohibit insurers from canceling or denying coverage to the owners of particular dog breeds. In Ohio, for example, owners of dogs that have been classified as vicious are required to purchase at least $100,000 of liability insurance.

The American Kennel Club reports that while many municipalities have enacted bans on specific breeds, several states have laws barring municipalities and counties from targeting individual breeds.

  • Dog owners’ liability: There are three kinds of law that impose liability on owners:
    1) A dog-bite statute: where the dog owner is automatically liable for any injury or property damage the dog causes without provocation.
    2) The one-bite rule: where the dog owner is responsible for an injury caused by a dog if the owner knew the dog was likely to cause that type of injury—in this case, the victim must prove the owner knew the dog was dangerous.
    3) Negligence laws: where the dog owner is liable if the injury occurred because the dog owner was unreasonably careless (negligent) in controlling the dog.
  • Criminal penalties: On January 26, 2001, two Presa Canario dogs attacked and killed Diane Whipple in the doorway of her San Francisco, California, apartment. Marjorie Knoller, the owner of the dogs, was convicted of involuntary manslaughter for keeping a mischievous dog that killed a person. She was sentenced to four years in prison for involuntary manslaughter and was ordered to pay $6,800 in restitution. Her husband, Robert Noel, was convicted on lesser charges but also received a four-year prison sentence. Knoller became the first Californian convicted of murder for a dog’s actions. This was only the third time such charges have been upheld in the United States, the first coming in Kansas in 1997.

High Satisfaction Rating from Home Insurance Customers

Courtesy of iii.org

About one of every 15 U.S. homeowners insurance policyholders files a claim each year and these claimants are now giving insurers their highest ever satisfaction ratings, according to the Insurance Information Institute (I.I.I.).

The J.D. Power 2017 U.S. Property Claims Satisfaction Study gives U.S. home insurers a record score of 859 (on a 1,000-point scale). The industry’s cumulative score stood at 846 in 2016. Five factors are considered when assessing policyholder satisfaction: settlement; first notice of loss; estimation process; service interaction; and repair process.

“Insurers are the nation’s economic first responders and, as such, are continually working to improve how they help Americans recover their lives and businesses in the wake of tragedy and catastrophe,” said Sean Kevelighan, president and chief executive officer (CEO) of the Insurance Information Institute (I.I.I.). “This year’s J.D. Power and Associates survey results are a clear reflection that the industry’s hard work and dedication are delivering the intended results.”

These all-time high claims satisfaction scores are even more remarkable given that incurred losses and loss-adjustment expenses for U.S. property/casualty (P/C) insurers grew by 7.6 percent year-over-year when comparing the first nine months of 2016 to the first nine months of 2015, according to an analysis developed by Dr. Steven Weisbart, the I.I.I.’s chief economist.

Incurred losses reflect the dollar amount of a home insurer’s claim payout whereas a loss adjustment expense is the sum an insurer pays for investigating and settling claims, including the cost of defending a lawsuit in court.

Moreover, Dr. Weisbart noted, catastrophe-related claims through the first nine months of 2016 were already at their highest level since 2012?the year of Superstorm Sandy?and the fourth quarter of 2016 pushed those numbers even higher after insured claim payouts from October 2016’s Hurricane Matthew.

The federal government agreed that 2016 was a volatile, and costly one, estimating 15 separate weather and climate events last year caused more than $1 billion in economic losses, not all of them insured, according to the National Oceanic and Atmospheric Administration (NOAA).

“Property and casualty insurers have redoubled their efforts to improve the settlement process and fine-tune their customer interactions, efforts that have been clearly recognized and appreciated by homeowners who experienced significant losses this past year,” J.D. Power said.

The study also noted opportunities for improvement, most notably in water-related and other complex claims that take a long time to settle and that cause significant lifestyle disruption. J.D. Power noted, “Insurers that manage to get the settlement process and customer interaction equation right in these types of disruptive and often catastrophic scenarios are those that raise the bar for the industry.”

The study is based on more than 6,600 responses from homeowner’s insurance customers, and was fielded between January and November 2016.

Do You Have Adequate How Much Homeowners Insurance?

Courtesy of iii.org

If disaster strikes, you’ll want enough homeowners insurance to rebuild the structure of your home, to help replace your belongings, to defray costs if you’re unable to live in your home and to protect your financial assets in the event of liability to others. Use these guidelines to help determine the coverage and amounts you need.


Determine how much insurance you need for your home’s structure

Standard homeowners policies provide coverage for disasters such as damage due to fire, lightning, hail and explosions. Those who live in areas where there is risk of flood or earthquake will need coverage for those disasters, as well. In every case, you’ll want the limits on your policy to be high enough to cover the cost of rebuilding your home.

The price you paid for your home—or the current market price—may be more or less than the cost to rebuild. And if the limit of your insurance policy is based on your mortgage (as some banks require), it may not adequately cover the cost of rebuilding.

While your insurer will provide a recommended coverage limit for the structure of your home, it’s a good idea to educate yourself as well. To make sure your home has the right amount of structural coverage, consider:

Major factors that will impact home rebuilding costs

  • Local construction costs
  • The square footage of the structure

For a quick estimate of the amount of insurance you need, multiply the total square footage of your home by local, per-square-foot building costs. (Note that the land is not factored into rebuilding estimates.) To find out construction costs in your community, call your local real estate agent, builders association or insurance agent.

Details that can impact home rebuilding costs

  • The type of exterior wall construction—frame, masonry (brick or stone) or veneer
  • The style of the house, for example, ranch or colonial
  • The number of bathrooms and other rooms
  • The type of roof and materials used
  • Other structures on the premises such as garages, sheds
  • Special features such as fireplaces, exterior trim or arched windows
  • Whether the house—or a part of it—was custom built
  • Improvements you’ve made that have added value to your home, such as the addition of second bathroom, or a kitchen renovation

 

Other considerations

Whether or not your home is up to code

Building codes are updated periodically and may have changed significantly since your home was built. In the event of damage, you may be required to rebuild your home to the new codes and homeowners insurance policies (even a guaranteed replacement cost policy—see below) generally won’t pay for that extra expense. If you suspect that elements of your home are not up to current building codes, consider getting an endorsement to your policy called an Ordinance or Law, which pays a specified amount toward bringing a house up to code during a covered repair.

Whether your home is older with hard-to-replace features

Lovely, special features on older homes—like wall and ceiling moldings and carvings—are expensive to recreate and some insurance companies may not offer replacement policies for that reason.

If you own an older home, you may have to buy a modified replacement cost policy. This means that instead of repairing or replacing features typical of older homes—like plaster walls—with like materials, the policy will pay for repairs using today’s standard building materials and construction techniques.

Allowing for possible increased cost of building materials

Inflation can impact rebuilding costs. If you plan on owning your home for a while, consider adding an inflation guard clause to your policy. An inflation guard automatically adjusts the dwelling limit to reflect current construction costs in your area when you renew your insurance.

After a major catastrophe such as a hurricane or tornado, construction costs may rise suddenly because the price of building materials and construction workers increase due to the widespread demand. This price bump may push rebuilding costs above your homeowners policy limits and leave you short. To protect against this possibility, a guaranteed replacement cost policy will pay whatever it costs to rebuild your home as it was before the disaster. Similarly, an extended replacement cost policy will pay an extra 20 percent above the limits (possibly more, depending on the insurance company).

Determine how much insurance you need for your possessions

Most homeowners insurance policies provide coverage for your belongings at about 50 to 70 percent of the insurance on your dwelling. However, that standard amount may or may not be enough. To learn if you have enough coverage:

Conduct a home inventory of your personal possessions

In order to accurately assess the value of what you own, it’s highly advisable to conduct a home inventory. A detailed list of your belongings will not only help you figure out how much insurance you need, but it will also serve as a convenient record. In the event any or all of your stuff is stolen or damaged by a disaster an inventory will make filing a claim much easier.

There are several apps available to help you take a home inventory, and our article on how to create a home inventory can help, as well.

While you’re reviewing your possessions, think about whether you want to insure them for actual cash value (where the policy would pay less money for older items than you paid for them new) or for replacement cost (which would cover to replace the items). The price of replacement cost coverage for homeowners is about 10 percent more but is generally a worthwhile investment in the long run. (Note that flood insurance for belongings is only available on an actual cash value basis.)

If you think you need more coverage, contact your insurance professional and ask about higher limits for your personal possessions.

Take stock of your expensive items

There are limits on how much a standard homeowners insurance policy will cover for items such as jewelry, silverware, collectibles and furs. For example, jewelry coverage may be limited to under $2,000. Some insurance companies may also place a limit on what they will pay for computers.

Check your policy (or ask your insurance professional) for the limits of your coverage for any expensive items. If your home inventory includes items for which the limits are too low, consider buying a special personal property floater or an endorsement. This will allow you to insure valuables individually or as a collection, with significantly higher coverage limits.

Determine how much additional living expense insurance you need

Additional Living Expenses (ALE) is a very important feature of a standard homeowners insurance policy. If you can’t live in your home due to a fire, severe storm or other insured disaster, ALE pays the additional costs of temporarily living elsewhere. It covers hotel bills, restaurant meals and other living expenses incurred while your home is being rebuilt.

If you rent out part of your house, this coverage also reimburses you for the rent that you would have collected from your tenant if your home had not been destroyed.

Many policies provide coverage for about 20 percent of the insurance on your house. But ALE coverage limits vary from company to company. For example, there are policies that provide an unlimited amount of coverage, for a limited amount of time, while others may only set limits on the amount of coverage. In most cases, you can increase ALE coverage for an additional premium.

Determine how much liability insurance you need

The liability portion of homeowners insurance covers you against lawsuits for bodily injury or property damage that you or family members or pets cause to other people, as well as court costs incurred and damages awarded.

You should have enough liability insurance to protect your assets. Most homeowners insurance policies provide a minimum of $100,000 worth of liability insurance, but higher amounts are available and, increasingly, it is recommended that homeowners consider purchasing at least $300,000 to $500,000 worth of liability coverage.

If you own property and or have investments and savings that are worth more than the liability limits in your policy, consider purchasing a separate excess liability or umbrella policy.

Consider an umbrella or excess liability policy

Umbrella or excess liability policies provide coverage over and above your standard home (or auto) liability policy limits. These policies start to pay after you have used up the liability insurance in your underlying policy. In addition to providing additional dollar amount coverage, umbrella or excess liability often offers broader coverage than standard policies.

The cost of an umbrella policy depends on how much underlying insurance you have and the kind of risk you represent. The greater the underlying liability coverage you have, the cheaper the umbrella or excess policy. To write an umbrella or excess policy, most companies will require a minimum of $300,000 underlying liability insurance on your standard homeowners policy.

Homeowners Insurance, What Does it Cover?

A standard homeowners insurance policy includes four essential types of coverage. They include:

  1. Coverage for the structure of your home.
  2. Coverage for your personal belongings.
  3. Liability protection.
  4. Additional living expenses in the event you are temporarily unable to live in your home because of a fire or other insured disaster.

1. The structure of your house

This part of your policy pays to repair or rebuild your home if it is damaged or destroyed by fire, hurricane, hail, lightning or other disaster listed in your policy. It will not pay for damage caused by a flood, earthquake or routine wear and tear. When purchasing coverage for the structure of your home, it is important to buy enough to rebuild your home.

Most standard policies also cover structures that are detached from your home such as a garage, tool shed or gazebo. Generally, these structures are covered for about 10% of the amount of insurance you have on the structure of your home. If you need more coverage, talk to your insurance agent about purchasing more insurance.

2. Your personal belongings

Your furniture, clothes, sports equipment and other personal items are covered if they are stolen or destroyed by fire, hurricane or other insured disaster. Most companies provide coverage for 50% to 70% of the amount of insurance you have on the structure of your home. So if you have $100,000 worth of insurance on the structure of your home, you would have between $50,000 to $70,000 worth of coverage for your belongings. The best way to determine if this is enough coverage is to conduct a home inventory.

This part of your policy includes off-premises coverage. This means that your belongings are covered anywhere in the world, unless you have decided against off-premises coverage. Some companies limit the amount to 10% of the amount of insurance you have for your possessions. You have up to $500 of coverage for unauthorized use of your credit cards.

Expensive items like jewelry, furs and silverware are covered, but there are usually dollar limits if they are stolen. Generally, you are covered for between $1,000 to $2,000 for all of your jewelry and furs. To insure these items to their full value, purchase a special personal property endorsement or floater and insure the item for it’s appraised value. Coverage includes “accidental disappearance,” meaning coverage if you simply lose that item. And there is no deductible.

Trees, plants and shrubs are also covered under standard homeowners insurance. Generally you are covered for 5% of the insurance on the house?up to about $500 per item. Perils covered are theft, fire, lightning, explosion, vandalism, riot and even falling aircraft. They are not covered for damage by wind or disease.

3. Liability protection

Liability covers you against lawsuits for bodily injury or property damage that you or family members cause to other people. It also pays for damage caused by your pets. So, if your son, daughter or dog accidentally ruins your neighbor’s expensive rug, you are covered. However, if they destroy your rug, you are not covered.

The liability portion of your policy pays for both the cost of defending you in court and any court awards?up to the limit of your policy. You are also covered not just in your home, but anywhere in the world.

Liability limits generally start at about $100,000. However, experts recommend that you purchase at least $300,000 worth of protection. Some people feel more comfortable with even more coverage. You can purchase an umbrella or excess liability policy which provides broader coverage, including claims against you for libel and slander, as well as higher liability limits. Generally, umbrella policies cost between $200 to $350 for $1 million of additional liability protection.

Your policy also provides no-fault medical coverage. In the event a friend or neighbor is injured in your home, he or she can simply submit medical bills to your insurance company. This way, expenses are paid without a liability claim being filed against you. You can generally get $1,000 to $5,000 worth of this coverage. It does not, however, pay the medical bills for your family or your pet.

4. Additional living expenses

This pays the additional costs of living away from home if you cannot live there due to damage from a fire, storm or other insured disaster. It covers hotel bills, restaurant meals and other expenses, over and above your customary living expenses, incurred while your home is being rebuilt.

Keep in mind that the ALE coverage in your homeowners policy has limits, usually a percentage of the amount of coverage you have on your home, and some policies include a time limitation. But the amount of ALE coverage is separate from the amount available to rebuild or repair your home. For example, suppose you have a policy that provides up to $150,000 in rebuilding costs and up to $15,000 (10 percent) for ALE and you use up the entire $15,000, your insurance company will still pay what it costs to rebuild your home up to the policy limit of $150,000.

Coverage for additional living expenses differs from company to company. Many policies provide coverage for about 20 percent of the insurance on your house. You can increase this coverage, however, for an additional premium. Some companies sell a policy that provides an unlimited amount of loss-of-use coverage, but for a limited amount of time.

If you rent out part of your house, ALE coverage also reimburses you for the rent that you would have collected from your tenant if your home had not been destroyed. Courtesy of iii.org

Homeowners Insurance, What Do I Need?

For many people, their home is their greatest asset, so it is crucial to avoid being underinsured. To protect their investment from disasters, homeowners should update their insurance regularly to include improvements, major purchases and increased rebuilding costs.

Since the end of the Great Recession in June 2009, despite the major drop off in construction activity, construction prices have actually risen significantly. Furthermore, after a disaster, materials and labor may become scare, driving repair and rebuilding costs up even further.

To properly insure your home, it is important to ask your insurance agent or company representative four key questions.

1. Do I have enough insurance to rebuild my home?

Your policy needs to cover the cost of rebuilding your home at current construction costs. Unfortunately, some homeowners simply purchase enough insurance protection to satisfy their mortgage lender. Others confuse the real estate value of their home with what it would cost to rebuild it. Quite simply, you should have enough insurance to rebuild your home in the event that it is completely destroyed. Be sure to consider the following:

  • Replacement Cost
    Most policies cover replacement cost for damage to the structure. A replacement cost policy pays for the repair or replacement of damaged property with materials of similar kind and quality.
  • Extended Replacement Cost
    This type of policy provides additional insurance coverage of 20 percent or more over the limits in your policy, which can be critical if there is a widespread disaster that pushes up the cost of building materials and labor.
  • Inflation Guard
    This coverage automatically adjusts the rebuilding costs of your home to reflect changes in construction costs. Find out if your policy includes this coverage or if you have to purchase it separately.
  • Ordinance or Law coverage
    If your home is badly damaged, you may be required to rebuild it to meet new (and often stricter) building codes. Ordinance or law coverage pays a specific amount toward these costs.
  • Water Back-Up
    This coverage insures your property for damage from sewer or drain back-up. Most insurers offer it as an add-on to a standard policy.
  • Flood Insurance
    Standard home insurance policies provide coverage for disasters such as fire, lightning and hurricanes. They do not include coverage for flood (including flooding from a hurricane). Flood insurance is available through the federal government’s National Flood Insurance Program (www.floodsmart.gov), but can be purchased from the same agent or company representative who provides you with your home or renters insurance. Make sure to purchase flood insurance for the structure of your house, as well as for the contents. Excess Flood Protection, which provides higher limits of coverage than the NFIP in the event of catastrophic loss by flooding, is available from some insurers. Keep in mind that there is a 30-day waiting period before the insurance is valid.

2. Do I have enough insurance to replace all of my possessions?

Most homeowners insurance policies provide coverage for your personal possessions for approximately 50 percent to 70 percent of the amount of insurance you have on the structure of your home. So if you have $100,000 worth of coverage on the structure of your home, you would be covered for $50,000 to $70,000 worth of the contents of your home, depending on the policy.

The best way to determine if this is enough coverage is to conduct a home inventory, which details everything you own and the estimated cost to replace these items if they are stolen or destroyed by a disaster. To help with this task, you can download the I.I.I.’s free home inventory software [link]. Remember to keep your home inventory in a safe place, and take it with you if you need to evacuate your home during a disaster.

You can insure your possessions in two ways: by their actual cash value or their replacement cost. Make sure you review with your agent or company representative which type of coverage is best for your particular situation.

  • Cash Value Policy
    This coverage pays the cost of replacing your belongings minus depreciation.
  • Replacement Cost Policy
    This coverage reimburses you for the full current cost of replacing your belongings.
    To illustrate the difference between the two types of policies, suppose, for example, a fire destroys a 10-year-old television set in your living room. If you have a replacement cost policy for the contents of your home, the insurance company will pay to replace the TV with a comparable new one. If you have an actual cash value policy, it will pay only a small percentage of the cost of a new TV set because the old TV has been used for 10 years and is now worth a lot less than its original cost. Some replacement cost policies specify that the new item be purchased by the insurance company as they may be able to purchase at a bulk or special rate. The price of replacement cost coverage is about 10 percent more than that of actual cash value.

3. Do I have enough coverage for additional living expenses?

Coverage for additional living expenses pays the extra costs of temporarily living away from your home if you can’t live in it due to an insured disaster such as a hurricane. It covers hotel bills, restaurant meals, transportation and other living expenses incurred while your home is inaccessible or being rebuilt. It is important to note that it covers only those expenses that are over and above your regular living expenses, so it would not cover your mortgage, or regular trips to the grocery store. If you rent out part of your house, this coverage also reimburses you for the rent that you would have collected from your tenant if your home had not been destroyed.

Coverage for additional living expenses differs from company to company. Many policies provide coverage for about 20 percent of the insurance on your house. Some companies will sell you a policy that provides you with an unlimited amount of loss of use coverage, for a limited amount of time.

Make sure you know exactly how much coverage you have for additional living expenses, and whether there is a time limit. If the standard coverage is not adequate, it can generally be increased for an additional premium.

4. Do I have enough insurance to protect my assets?

Although not a key element in disaster planning, it is also important to have adequate liability protection. This covers you against lawsuits for bodily injury or property damage that you or your family members may cause to other people. It also pays for damage caused by pets. Liability insurance pays for both the cost of defending you in court and for any damages a court rules you must pay?up to the limits of your policy. Most homeowners insurance policies provide a minimum of $100,000 worth of liability insurance, but higher amounts are available.

It is important to purchase enough liability insurance to protect your assets. If the standard liability coverage in your homeowners policy is not sufficient, you may need an excess liability, or umbrella, policy, which provides additional coverage over and above what is covered in your home (and auto) insurance policy.

If you do suffer damage from a disaster, contact your insurance agent as soon as possible and begin the claims filing process. Also if you need the assistance of FEMA, here are their Frequently Asked Questions about FEMA Disaster Assistance.

courtesy of iii.org

Homeowners B-What Do You Know About It?

There are six parts to a homeowner’s insurance policy. Most people understand that Coverage A insures against damage to the structure itself. Coverage B offers insurance protection for detached structures, such as a garage, storage shed, swimming pool and the backyard fence. For no extra charge, almost every policy extends coverage to other structures on the property by 10 percent of the amount for which the home is insured. Is the 10 percent sufficient for your situation?

With a home insured for $200,000, Coverage B would mean there is up to $20,000 to replace or repair a detached garage, for example. And, in many instances that may be enough. But what if your detached garage was big enough to hold three cars and you used a section to refurbish fine antiques? What if there was a game room, aka man cave, above the garage with high-end electronics? That $20,000 may not be enough coverage in those situations. To be fully insured, additional coverage should be purchased.

Many insurers offer options for increasing “Other Structures” coverage, ranging from 15 percent to 100 percent more. If there is a separate guest house on the property, increasing Coverage B makes sense. It may even be a good idea to consider it if the yard is wrapped with a high-end vinyl fence. The best way to know the right amount of coverage for detached structures is to do a home inventory. Courtesy of http://www.insuringflorida.org.